Auto Loans for bad credit
One way auto loans can be available for people with bad credit is if the borrower puts forth a significant down payment towards the purchase of the car. Similar to mortgages, lenders who provide auto loans prefer that their borrowers put forth some form of a down payment towards the car purchase. While the level required varies from bank to bank, most lenders want a borrower to put forth at least a 20% down payment. If a borrower has a bad credit score, a bank may want the borrower to put forth closer to 50% of the purchase price. The equity that the borrower is required to put forth can normally include the trade in value that they receive for their previous car.
Those with poor credit scores could ultimately receive an auto loan if they are willing to accept a high interest rate or shorter loan term on their auto loan. While banks presently are offering great rates on auto loans, they tend to only be available for those with good credit. Those with bad credit could still easily qualify for a loan, but should expect to pay a much higher interest rate and even some origination fees. Also, many lenders only offer shorter term loans with terms of 3 years or less to people with low credit scores. This compares to people with good credit scores who could receive term lengths of up to 6 years.
Those people with poor credit scores can still find auto loans if they are willing to accept a loan provided by the seller of their car. Many national and regional car dealers have internal financing departments which have the ability to offer loans to buyers of their cars. Since these lenders are not held to the same underwriting standards as traditional banks, and because they are motivated by the money they will make on the sale of the car, dealer financing department are often willing to provide loans to people who have bad credit.